When looking at your WooCommerce accounting and finances it’s important to have KPIs that act as a litmus for your business’ health. While it may seem intimidating, monitoring key performance indicators (KPIs) is an essential aspect of successfully managing a WooCommerce business. In this article, we will discuss seven important WooCommerce KPIs that have an impact on your finances and accounting:
Average Order Value
One KPI you should track for your WooCommerce store is the average order value. Average order value or AOV refers to the average amount each customer spends when making a purchase from your store. It is calculated by dividing total revenue by the total number of orders.
Monitoring your AOV helps determine how much the average customer is spending and serves as an indicator for opportunities to boost sales. An increasing AOV means customers are either buying greater quantities or more expensive items, demonstrating their willingness to spend more per transaction.
AOC = Total revenue / total number of orders
However, if AOV is decreasing, it signals that customers are spending less per order and may require incentives to add higher-value items to their basket or make larger purchases. Decreasing AOV can often be reversed by targeted promotions, product bundling based on purchase history, or loyalty programs reward for larger basket sizes.
Overall, regularly tracking average order value for your WooCommerce business provides useful insight into purchase trends and helps identify ways to maximize the lifetime value of both new and returning customers.
Customer Acquisition Cost (CAC)
Customer acquisition cost or CAC refers to the total amount spent on gaining one new customer for your business. To calculate the CAC for your store, start by dividing all costs associated with attracting new customers—such as marketing, advertising and promotional expenses—by the total number of new customers acquired during a given period.
CAC = Cost of attracting new customers / total number of customers acquired over given period
A lower CAC means you’re gaining new customers is relatively affordable, while a higher cost may require adjustments to your strategies to ensure long-term sustainability. Comparing CAC to metrics like average order value also helps put the marketing spend into perspective. If the cost to acquire a new customer far exceeds the potential lifetime value of the customer, it might be worth considering investment of resources into other areas of the business.
Monitoring your CAC provides insight into how much you are investing to build your customer base and helps determine if those efforts are cost-effective. It’s important to note an acceptable CAC for one business model may differ for another, so determining an ideal ratio based on your specific operations and profit margins is key.
Cost of Goods Sold (COGS)
An option to consider tracking for WooCommerce accounting purposes is the cost of goods sold. Cost of goods sold or COGS refers to the expenses involved in sourcing, manufacturing or purchasing the products you sell. For e-commerce businesses, COGS typically includes inventory costs, shipping supplies and fulfillment fees. You can calculate it by using the following formula:
COGS = Beginning Inventory (the cost of your existing product stock) + Purchases (the amount you spend to acquire new inventory) – Ending Inventory (the cost of any products left unsold at the end of the period)
Monitoring your COGS gives insight into how much capital is required to generate revenue through the sale of goods. A lower COGS relative to revenue indicates a higher profit margin, while a COGS that makes up a large portion of sales may demonstrate inefficient operations or an unsustainable business model unable to generate meaningful returns in the long term.
Reviewing COGS reports helps identify ways to optimize profits such as reducing excess inventory to cut carrying costs, negotiating lower purchase prices from suppliers, or minimizing fees associated with shipping and fulfillment.
For more effective tracking, compare COGS to metrics like average order value to determine ideal pricing based on your costs and target profit margins. COGS should also be evaluated regularly over different periods to monitor for any rising or seasonal trends, with action taken quickly if costs begin to overwhelm profits and threaten financial stability.
Net Profit Margin
Net profit margin measures the percentage of total revenue that is left over as profit after all operating expenses, costs of goods sold, and other deductions are accounted for. It is calculated by dividing net profit—meaning revenue minus total expenses—by total revenue. For e-commerce businesses, net profit margin provides a bottom-line view of profitability and overall financial health.
Net Profit Margin = Net profit / total revenue
A higher net profit margin signals that a company is efficiently generating profit from their operations. After the cost of goods sold and additional overhead costs required to run the business are deducted from total revenue, a substantial portion remains as profit. However, a lower margin may indicate the need for strategic changes to cut excess costs, optimize pricing models or scale back unprofitable areas of the business.
Revenue has value only if operations are sustainable and generate meaningful profit, so monitoring net profit margin helps determine if costs are in line with the business model or threatening to reduce profits over time.
Overall, net profit margin serves as a key performance indicator providing tremendous insight to help e-commerce businesses make important decisions around managing finances, controlling costs and maximizing sustainable growth opportunities.
The percentage of repeat customers refers to the number of existing customers who make additional purchases from your store over time. It is calculated by dividing customers with two or more transactions by your total customer base. A higher percentage of repeat customers is ideal and shows you are building lasting relationships that encourage future sales.
Repeat Customer Rate = Customers with two or more transactions / total customer base
A high repeat customer rate demonstrates you are providing a positive shopping experience and products or services that inspire loyalty. Customers would not return if their first interaction was poor or failed to meet expectations. While new customer acquisition fuels initial growth, repeat customers generate ongoing revenue and increased lifetime value at a lower cost of marketing.
Strategic initiatives like loyalty or VIP programs, product or service bundles, and personalized email outreach aim to optimize the long-term value of your repeat customers through incentives and convenience. Tracking repeat customer percentage provides invaluable insight into the success of your customer experience and retention strategies over time.
To track inventory turnover for your store you’ll need to calculate it by dividing the cost of goods sold by the average inventory metrics for a month, quarter or year. Inventory turnover refers to how frequently a business sells and restocks its inventory over a given time period. Monitoring inventory turnover is key to to managing optimal inventory levels and avoiding excess waste or loss.
Inventory Turnover Ratio = Cost of goods sold – average inventory
A high inventory turnover means products are selling quickly and inventory may need to be reordered to prevent stockouts. However, a low turnover signals that inventory is moving slowly and not generating enough profit. Reviewing inventory reports helps determine which products are bestsellers, steady sellers or slow movers based on their rate of turnover.
As revenue increases over time, inventory should also turn over more rapidly. If not, it likely indicates excess stock that is not meeting demand. To optimize inventory turnover look into streamlining purchasing to more closely match sales, running promotions to move slow products, or eliminating non-selling items altogether as strategies to apply to your business. The ideal inventory turnover depends on your specific business model, sales volumes and profit margins, but in general, higher is linked to better business performance.
When considering KPIs to track for your WooCommerce accounting, it is essential to track cash flow. Cash flow refers to the total amount of money moving into and out of a business. It is calculated by summing up all revenue from sales and other income sources as well as subtracting all operating, inventory and predicted costs.
Consistently reviewing cash flow statements is important in ensuring enough revenue is coming in to cover expenses, as poor cash flow management poses a threat to your business’ overall stability.
Strategies to optimize cash flow include:
- Improving collection of accounts receivable by reducing late or overdue payments from customers.
- Negotiating longer payment terms from suppliers to delay when bills come due.
- Limiting excess inventory which ties up funds that could otherwise be put to more profitable use.
- Cutting unnecessary costs such as outdated subscriptions, inefficient processes or unused tools and services.
Each strategy aims to maximize the amount of readily available cash on hand to pay for necessary operating expenses.
How to get started with tracking WooCommerce KPIs
By combining the capabilities of both WooCommerce and Amaka, you can effortlessly import transaction details and other important information into your accounting software. This simplifies the process of reviewing your WooCommerce analytics and evaluating KPIs for your e-commerce store like never before.
It’s important to remember that while KPIs serve as valuable indicators of your business’s well-being, they alone are not sufficient. If you’re interested, we offer the opportunity to schedule a personalized 30-minute call with one of our experts for a one-on-one demo of the Amaka accounting integration. This walkthrough will provide you with a firsthand experience of how it works and its benefits.
Key takeaways on WooCommerce KPIs
Taking control of your WooCommerce finances becomes simple when applying the use of KPIs. They allow you to have measurable standards to produce tangible results. By using KPIs and automations to assist in tracking, reporting and streamlining your financial processes, you will be able to set your business up for success. Having this in place gives you a solid foundation to build off of, and will continue to benefit your business in the long run.